Externalities require government intervention when
A) violence will result between disputing parties.
B) there are only a few sellers in the market.
C) property rights are not clearly established.
D) the government imposes sales taxes.
E) all of these answer options are correct.

Question

Quizplus · Accepted Answer

Externalities require government intervention when property rights are not clearly established, as in the case of positive externalities where the person creating them cannot capture the full value, or negative externalities where the person causing them does not have to pay the full cost. In such cases, government intervention can help establish property rights and/or internalize the externalities through taxes, subsidies, or regulations. Option A is incorrect as violence is not a necessary condition for government intervention in externalities. Option B is incorrect as the number of sellers in the market is irrelevant when it comes to externalities. Option D is incorrect as sales taxes, while they may affect market outcomes, are not directly related to the issue of externalities. Option E is incorrect as not all options are true.

Externalities Require Government Intervention When